Most homeowners in the U.S. are aware that if they live in a designated flood plain, they are likely required to purchase flood insurance. But do your transferring employees know that even if they don’t live in a flood plain, they may be required to purchase a flood insurance policy? Renters may also benefit from purchasing a flood insurance policy to protect their household contents. Because relocation policies do not often advise employees to consider purchasing flood insurance, the following information will prove useful to your transferring employees to encourage them to be properly insured in the event a flood damages their homes.
Anywhere it rains, it can flood. The National Flood Insurance Program (NFIP) in the United States defines a flood as a general and temporary condition where two or more acres of normally dry land or two or more properties are inundated by water or mudflow. Many conditions can result in a flood: hurricanes, overtopped levees, outdated or clogged drainage systems and rapid accumulation of rainfall.
The NFIP is administered by the Federal Emergency Management Agency (FEMA), which works closely with more than 80 private insurance companies to offer flood insurance to homeowners, renters and business owners. In order to qualify for flood insurance, the home or business must be in a community that has joined the NFIP and agreed to enforce sound floodplain management standards.
Here are the basics you and your transferring employees should understand about flood insurance in the U.S. – please share with any relocating employees who aren’t familiar with the topic or could use a refresher!
1. Why Does My Mortgage Lender Require Me To Buy Flood Insurance?
Under federal law, the purchase of flood insurance is mandatory for all federal or federally related financial assistance for the acquisition and/or construction of buildings in high-risk flood areas (Special Flood Hazard Areas or SFHAs).
The amount of flood insurance coverage required by the Flood Disaster Protection Act of 1973, as amended by the National Flood Insurance Reform Act of 1994, is the lesser of the following:
- The maximum amount of NFIP coverage available for the particular property type,
- The outstanding principal balance of the loan, or
- The insurable value of the structure.
If the property is not in a high-risk area but instead in a moderate- to low-risk area, federal law does not require flood insurance; however, a lender can still require it. In fact, over 20% of all flood insurance claims come from areas outside of mapped high-risk flood zones. Note that if during the life of the loan the maps are revised and the property is now in the high-risk area, your lender will notify you that you must purchase flood insurance.
2. When Is Insurance Required?
Homes and businesses with mortgages from federally regulated or insured lenders in high-risk flood areas are required to have flood insurance. However, a lender can require flood insurance, even if it is not federally required. While flood insurance is not federally required if you live in a moderate- to low-risk flood area, it is still available and strongly recommended.
A. Residents Of High-Risk Areas
Homes and buildings in high-risk flood areas with mortgages from federally regulated or insured lenders are required to have flood insurance. In high-risk areas, there is at least a one in four chance of flooding during a 30-year mortgage.
B. Residents Of Moderate- To Low-Risk Areas
Homes and businesses located in moderate- to low-risk areas that have mortgages from federally regulated or insured lenders are typically not required to have flood insurance. Even though flood insurance isn't federally required, anyone can be financially vulnerable to floods. In fact, people outside of mapped high-risk flood areas file over 20% of all NFIP flood insurance claims and receive one-third of Federal Disaster Assistance for flooding. When it's available, disaster assistance is typically a loan you must repay with interest.
3. How Do I Purchase Flood Insurance?
Flood insurance can only be purchased through an insurance agent; you cannot buy it directly from the federal government.
4. What Is and Is Not Covered Under a Flood Insurance Policy?
Flood insurance policies cover physical damage to your property and possessions. You can use the following list as a general guide to what is and isn't covered. As with any other type of insurance, it's important to know what your policy does and doesn't cover. For example, damage caused by a sewer backup is only covered by flood insurance if it's a direct result of flooding. The damage is not covered if the backup is caused by some other problem.
Deductibles apply separately to building and contents with different amounts to choose from. Like other insurance plans, a higher deductible will lower the premium you pay but will also reduce your claim payment. Your mortgage lender can also set a maximum amount for your deductible.
- The insured building and its foundation
- Electrical and plumbing systems
- Central air conditioning equipment, furnaces and water heaters
- Refrigerators, cooking stoves and built-in appliances such as dishwashers
- Permanently installed carpeting over unfinished flooring
- Permanently installed paneling, wallboard, bookcases and cabinets
- Window blinds
- Detached garages (up to 10% of building property coverage); detached buildings (other than garages) require a separate building property policy
- Debris removal
Personal Contents Property
- Personal belongings, such as clothing, furniture and electronic equipment
- Portable and window air conditioners
- Portable microwave ovens and portable dishwashers
- Carpets that are not included in building coverage
- Clothing washers and dryers
- Food freezers and the food in them
- Certain valuable items such as original artwork and furs (up to $2,500)
- Damage caused by moisture, mildew or mold that could have been avoided by the property owner
- Currency, precious metals and valuable papers such as stock certificates
- Property and belongings outside of an insured building such as trees, plants, wells, septic systems, walks, decks, patios, fences, seawalls, hot tubs and swimming pools
- Living expenses such as temporary housing
- Financial losses caused by business interruption or loss of use of insured property
- Most self-propelled vehicles such as cars, including their parts (see Section IV.5 in your policy)
- Coverage is limited in basements regardless of zone or date of construction. It's also limited in areas below the lowest elevated floor, depending on the flood zone and date of construction. These areas include:
- Basements (make sure to ask your agent for additional details on your basement coverage)
- Crawl spaces under an elevated building
- Enclosed areas beneath buildings elevated on full-story foundation walls that are sometimes referred to as "walkout basements"
- Enclosed areas under other types of elevated buildings
5. How Much Does Flood Insurance Cost?
The NFIP offers flood insurance, which can be purchased through most leading insurance companies. Rates are set and do not differ from company to company or agent to agent. These rates depend on several factors, including the date and type of construction of your home, along with your area's level of risk. Most premiums include a Federal Policy Fee and ICC Premium. If your community participates in the Community Rating System (CRS), you may qualify for an insurance premium discount in some communities of up to 45% if you live in a high-risk area and up to 10% in moderate- to low-risk areas.
6. What is the Waiting Period?
Typically, there's a 30-day waiting period from date of purchase before your policy goes into effect. Here are the only exceptions:
- If flood insurance is purchased in connection with making, increasing, extending or renewing your loan, there is no waiting period.
- If a building is newly designated in the Special Flood Hazard Area (SFHA) and flood insurance is purchased within the 13-month period following a map revision, there is a 1-day waiting period.
- If additional insurance is selected as an option on the renewal bill, there is no waiting period.
- If a property is affected by flooding on burned Federal land that is a result of, or is exacerbated by, post-wildfire conditions when the policy is purchased within 60 days of the fire containment date, there may be no waiting period. Waiving of the waiting period is determined at the time of the claim.
For homeowners, it's important to insure a home and its contents. And renters are also advised to insure their household contents. Especially if your transferees are moving to a new area with different flood risks, they need to know the basics. We hope this helpful guide can ease their minds! After all, even though flood insurance is not mandatory in all areas, the premium paid may be worth the peace of mind when an unexpected flood hits their home.